Landlord wants to switch my lease to a "Land contract" to "get back at the city"

Question

I've been living at this place for about two months and my lease looks pretty typical. Nothing unusual. I've had no problems so far.

Today my landlord called me and explained something about the city wanting to charge him for a rental inspection that only covers the outside of the house, and so he's outraged that he has to pay for some guy to just look at the house from the sidewalk. He then explained that his plan is to present me with a "land agreement" and also a contract to invalidate the current lease so that I'm just paying him for the land agreement instead. I'm pretty confused about this whole thing and it doesn't seem right.

Through some quick googling, it sounds like I'd suddenly have to pay taxes on the property as if I owned it. Suddenly I would become responsible for paying the fee he's complaining about? Not to mention I don't know if any tenant rights apply anymore.

I'm deeply confused and would like to know if this is a thing many landlords try to do and whether there's anything I should start doing to cover myself if my landlord starts getting weirder.

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Update: He says it could be a few months before he has the land contract for me to sign. I haven't agreed to anything and told him I'm going to check with a lawyer before taking any action.

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Update 2: I'm not going to be signing anything and am going to be upfront about that rather than entertain the notion of having a lawyer look over the agreement. Thanks everyone!

Answer 1

A "land contract" is not a way of renting property, it is a way of purchasing property on an installment basis without bank financing. It is Ohio's version of what in some other places is known as "contract for deed".

See "What is a Land Contract in Ohio" and "How Land Contracts Work" The actual law is Section 5313.

In a land contract, the buyer has equitable but not legal title. The buyer normally pays all taxes and fees, and is responsible for maintaining the property, just as if s/he has bought the property. But if the buyer defaults, all payments and equity would be forfeit to the seller. Until the buyer has paid 20% of the purchase price, or made 5 years of payments (whichever comes first) a single missed payment constitutes default and can lead to the buyer being evicted with all payments to date going to the seller, the buyer coming out of the deal with nothing.

Also, if the seller still has a mortgage and defaults, the buyer may lose everything paid to date. The buyer does not have the protections that a lease gives a tenant, nor the protections that legal title gives a purchaser via a traditional mortgage.

Land contracts are often used when the buyer cannot qualify for a mortgage.

The buyer pays interest, and it is often at a higher rate than the current rate on a mortgage.

Land contracts are often a form of predatory lending, but for some buyers they make sense. A buyer needs to carefully review the contract with a lawyer knowledgeable about land contracts, and consider the risks and benefits of this form of financing.

As I understand it, there cannot be a valid land contract for one apartment in an apartment building. A land contract must be for title to the land and all fixtures, including all buildings, on it. (There was at one point some unclarity if the question referred to an apartment. It is now clear that it refers to a house, so this statement is not relevant to the OP, but may be to others.)

It is not clear just what the OP's landlord (LL) has in mind. It may be that LL plans to offer a "land contract" in which the purchase would be completed only after a very long time, with the idea that the OP would simply default when s/he wanted to move. Such a default could harm the OP's credit. There seems no benefit to the OP in such a scheme compared to a lease, unless LL will lower the price significantly, taking into account maintenance costs and taxes, which OP may well be expected to pay under a land contract.

Note that a landlord can't legally force a tenant to sign a document cancelling a lease, or to sign whatever s/he will call a "land contract". Nor can s/he cancel the lease without the tenant's consent except for good cause as specified in the law (such as not paying rent). S/He could become uncooperative on other matters if a tenant doesn't do as s/he wants.

If a tenant does cancel his or her lease, s/he will lose some rights. Others are guaranteed by law as long as the tenant is paying rent. If one signs a "land contract", what happens depends on its provisions.

OP needs to very carefully consider just what is being offered, and its risks and any possible benefits. Details of the contract will matter.

No matter exactly what LL has in mind, this is not at all a usual procedure for a landlord. OP or anyone in a similar circumstance should be very careful.

Answer 2

This is buying a house. If that's not what you mean to do, watch out! Even so, watch out.

Honestly, if it hadn't occurred to you until now to buy a house, this isn't for you. If this has piqued your interest in buying a house, explore doing it the normal way with bank mortgage, realtor, all that.

Land contracts are often thought of as "exploitive", and this very thing here is why. They are often offered to lifetime rental tenants who are totally inexperienced at house-buying, and don't know a good or bad deal when they see one. They have no reference for comparison. As such, they get suckered.

So I'd like you to actually house-hunt the normal way, so you can develop a reference. So you know what normal home sell prices are, what interest rates you qualify for, etc.

• It's true. Lots of towns punish landlords because they don't want rental properties junking up their fine town. These harassment fees, such as this inspection or higher property tax rates, go away -- hence your landlord's interest.
• Land contracts often don't have down payments, mortgages almost always do for most people in the market for a land contract
• It moves the property tax burden to you. The amount of this property tax is public record. Signing a land contract may increase the property's paper value, which increases its property tax.
• It moves maintenance to you.
• You must maintain so the lender (former landlord) doesn't lose value in his collateral.
• But you can do your own work; only pros can work on rental properties.
• If you manage your finances well, it builds home equity for you.
• However, the equity belongs to the seller until you successfully finish the land contract.
• The usual way to finish the land contract is, refinance with a regular bank mortagage - with mortgages, the equity belongs to you.
• The paper "purchase price" on the land contract may seem unimportant. It's a huge deal. It is the purchase price you are agreeing to pay. A bad deal makes it impossible to finish the land contract by converting it to a real mortgage. Make sure it is market competitive!
• If your lease goes month-to-month, the landlord can evict you for any or no reason* on a month's notice. Not on a land contract! You'd have to miss a payment (one is enough) or do something blatant like not maintain the place.

Land contracts are very often offered by landlords to tenants who don't have the financial skill to manage the asset. This ends up playing out just like a rental for the landlord, except the tenant paid the property tax and maintenance too, so worse for the tenant.

One way land contracts can work in your favor is if the market causes the property to appreciate in value. That creates equity. That belongs to you if you can finish the land contract.

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* except certain illegal reasons, and except in rent-control areas.

Answer 3

Tax wise, you don't have to pay taxes on someone else's property. The same goes for the inspection. He has to be inspected because he is renting to someone else, you aren't.

He isn't selling you land, if you are paying him for the apartment, you are still a renter, so no matter what he calls it, the building must be inspected, because someone lives there.